Europeâs â¬11bn ($13bn) biotechnology industry is lagging a newly resurgent US and could be overtaken by the fast-growing Asia-Pacific region.

Only by slashing research and development budgets by one-sixth and shedding one in 20 of their staff did Europe’s biotechnology firms cope with the first slump in annual sales since the survey began.

There were a handful of success stories, most notably Swiss groups Serono and Actelion. However, most biotechnology companies are not delivering in the way that counts – bringing new drugs to market.

“Despite a wealth of late-stage products in development, drug approvals were again thin on the ground in 2003,” said the report.

Just six drugs involving European firms got the green light. That compares to 20 in the US.
The clinical success in the US fed through to financial performance with $14bn in fresh capital raised, the second best year for the American biotech industry.

The European experience was much more patchy, according to William Powlett Smith, leader of Ernst & Young’s health franchise group. He said: “On the whole, the European industry has not enjoyed the buoyancy seen in the US.”

Companies have responded to challenging funding conditions and lack of investor confidence by cutting research spending and shedding jobs.

Sales last year fell 12% to €11.2bn, compared with 2002. The belt-tightening helped the bottom line, reducing net losses across the industry by 52% to €1.9bn. However, 4,200 jobs were lost, reducing the numbers working in the industry to 77,900.

A cash crunch could be looming for some European biotechnology companies. While the proportion of US groups with less than two years’ worth of cash in reserve improved from 55% to 31%, the proportion in Europe worsened from 35% to 43%.

With more than 60 products in late-stage development in listed companies, Europe could stage a comeback but the smart money is heading east.

Powlett Smith said: “There is a growing consensus that the Asia-Pacific region is the real threat to the dominant US industry, rather than Europe.”

Low wages and experience in manufacturing generic products coming off patent gave the region an edge, he said.

Ansbert Gadicke, co-founder of MPM Capital, agreed: “I would not be surprised if the ultimate challenge for the US came from Asia rather than Europe.”

He wrote in an article in the Ernst & Young report: “The process for approval is too complex and the system is too rigid. It is also not sufficiently consistent or predictable in its outcomes and there is insufficient accountability.” He contrasted Europe with the US’s more supportive and open authorities.

Serono had its product Serostim blocked as an Aids treatment by Europe’s Committee for Proprietary Medicinal Products, only to have it cleared a few months later by the US equivalent, the Food and Drugs Administration.

Powlett Smith called for a speeding up of drug approvals in Europe. New drug candidates were not reaching the approval stages at a fast enough pace for investors to see the industry in a more favourable light, he argued.

He warned that competition from well-financed US rivals was going to intensify.

Other financiers were more optimistic about the industry. Nigel Pitchford, associate director of 3i Healthcare, described conditions last year as “appalling”, but was confident the US recovery would spread to Europe.